This article describes the gWBS ACCOUNTS used in D-E Project Accounting
GLOBAL WBS ACCOUNT (gWBS) represents an optional Supporting Account for its corresponding Project Cost Account. One gWBS Account comprises many positions of Project Cost Estimate, all belonging to the same Class (e.g. C2d = Cost Account, Materials, Direct Costs). The gWBS Account supplies three values to the corresponding Project Cost Account: the estimated Forecast Cost, the current Global Earned Value, and the current Global Earned Work.
Concept of gWBS Account
The concept of Work Breakdown Structure (WBS, known also as EVMS) is well familiar to Cost Engineers. One WBS structure comprises several Cost Elements, such as construction work costs, material costs, or engineering costs. The current Earned Value of that WBS is calculated considering the sum of individual Earned Values and the individual Costs of each Cost Element versus the sum of all Cost Elements, using this formula:
[EARNED VALUE] = Sum [ ( [Individual Earned Value] * [Individual Cost]) / Sum ([Individual Cost])]
The concept of Global WBS Account is similar but not the same as that of WBS, because the gWBS concept covers also the dual-entry requirement of DEBIT=CREDIT. Namely, each increment of the individual Earned Value % [CREDIT] is converted to a dollar figure (by multiplying by the individual Cost) and the result is called individual Earned Work $ [DEBIT], that is assigned to the corresponding Project Participant (Contractor, Supplier, or Engineering Firm). The following formulas apply:
[individual EARNED WORK] = [individual Total Cost] * ( [Current Individual Earned Value] - [Previous Individual Earned Value])
[Global Earned Value] = Sum [ ( [Individual Earned Value] * [Individual Cost]) / Sum ([Individual Cost]) ]
[Global Earned Work] = [Global Earned Value] * [gWBS Total Cost] >>> distributed between involved Project Participant
The days when bookkeeping was done using pen and paper are gone. Today - whether in Business Accounting or in Project Accounting - all bookkeeping is done using computer software. There are many computer programs for Business Accounting, but in Project Accounting there is so far only one (click here); hence, in our articles, all illustrations refer to TECA.
To clarify the gWBS concept, let us review three examples: one for CONSTRUCTION, the next for MATERIALS, and the last for ENGINEERING.
The first example deals with CONSTRUCTION, (click here) showing one gWBS Accounts, called Harbor inclusive of Jetties, comprising 11 cost positions, with the total value of $326,589,900. The work progress (supplied by Field Engineer) of individual Cost Positions results in the Global Earned Value of 8.93%, equivalent to the Global Earned Work of $29,171,062, credited to three (3) Contractors as follows: (click here) Ajaing Muzhong $18,660,236; BongMuan Construction $9,611,596; and China National Nuclear $899,239. These Global Earned Value and Global Earned Work are being used as the input data for the Expense Journal Entry named Construction Progress for Period #13; (click here). There the Global Earned Value of 8.93% [CREDIT] is offset by the Global Earned Work of $29,171,062 [DEBIT] distributed between the involved three Suppliers, referenced by purchase order numbers.
The next example deals with MATERIALS, (click here) showing one gWBS Account, called Instrumentation Material. It comprises 10 cost positions, with the total value of $4,927,000. During the Project Period #13, purchase orders have been issued for Instruments listed under Ln #1,# 2,#4, #7, and #10, for the total value of $2,653,000, to the indicated three (3) Suppliers. The results (instantly calculated by TECA) show that the Global Earned Value increment is equal 53.85%, and that the Global Earned Work of $2,653,000 is distributed between the three Suppliers as follows (click here): China Westinghouse $379,000; Gerber Laboratories $1,440,200; and Pinghen Electronics $833,800. These Global Earned Value and Global Earned Work are being used as the input data for the Expense Journal Entry named Material Expenses for Period #13; (click here). There the Global Earned Value of 9.00% [CREDIT] is offset by the Global Earned Work of $2,653,000 [DEBIT] distributed between the involved three Suppliers, referenced by purchase order numbers.
The last example deals with ENGINEERING, (click here) showing one gWBS Accounts, called Other Indirect Engineering, comprising 6 cost positions, with the total value of $3,353,726. The work progress (supplied by Project Engineer) of individual Cost Positions, referring to Project Period #26, shows for the Global Earned Value of 30.11%, equivalent to the Global Earned Work of $3,353,726, credited to two (2) Engineering Firms as follows: (click here) Ma Weihua Engineering $2,456,487; and Sinoma Fenglan Engineering $897,239. These Global Earned Value and Global Earned Work are being used as the input data for the Expense Journal Entry entitled Indirect Engineering Expenses for Period #26; (click here). There the Global Earned Value of 30.11% [CREDIT] is offset by the Global Earned Work of $3,353,726 [DEBIT] distributed between the involved two Engineering Firms, referenced by purchase order numbers.
NOTES about gWBS Accounts
Project Management and particularly Project Sponsors expect to receive cost reports that can show project costs clearly summarized, referring to large project objects, without too much detail, but with dependable information showing for what and when money was spent, and how much more money must be supplied and when. Hence, the utilization of gWBS Accounts is the proper solution.
This means that the Code of Accounts of any engineering project should contain a limited number (preferably less than 200) Project Cost Accounts. Although the computer program (TECA) allows for practically unlimited number of Cost Accounts, as well as unlimited number of Cost Positions in each gWBS Account, the limit of 200 seems to be sound. Since all positions of Original Cost Estimate must be included, the choice of 200 Cost Accounts, each with say 100 Cost Positions in the corresponding gWBS Account, sets the limit for the Original Cost Estimate to contain 20,000 Cost Positions (200 x 100), that should be seen as satisfactory. However, not all Cost Accounts may need their supporting gWBS Accounts. TECA permits to create gWBS Accounts individually, or globally for all Cost Accounts at once, by clicking appropriate buttons. Click here to see TECA screen called Listing Global WBS Accounts that facilitates retrievals of details screens of gWBS Accounts, as related to Project Objects and Project Participants.
Each global WBS Account can comprise any number of Cost Estimate Positions, but only positions of the same CLASS. For example, the gWBS called ‘Instrumentation Materials’ may contain hundreds position of the Cost Estimate, each stipulating some instrumentation material that shall be procured and purchased from some vendor, defined later, where all costs belong to Class MATERIALS-Direct Costs. Another gWBS account, called ‘Reactor Building, Unit I, Structure’ may contain positions of construction works such as Foundation Piles, Ground Floor Slab, Containment Structure, Interior Framing Structure, Basic Plumbing & Sanitary Work, Basic Electrical Work, Basic Insulation, Painting – each job to be performed by some contractor, defined later, where all costs belong to Class CONSTRUCTION-Direct Cost. Another account called ‘Other Indirect Engineering’ may contain engineering costs such as ‘Salaries of Secretaries’, ‘Computers of Secretaries’, ‘Office Materials’, ‘Telephone, Fax and Internet’, ‘Office Personnel Travel’, and ‘Office Personnel Accommodation’, where all costs belong to Class ENGINEERING-Indirect Costs. The contents of each gWBS Account must obey the Rules for gWBS Accounts; (click here).
At the project initiation phase, the Cost Engineer jointly with the Cost Estimating Engineer must define ID-numbers and titles for some or all Global WBS Accounts, ensuring that each gWBS account shall represent one major object of the Project. The total number of the gWBS accounts should preferably be not greater than 200, to enable for the required strategic project accounting. Once the total Project Cost Estimate is packed into the gWBS Accounts, the sum of Forecasts of all gwBS Accounts must be equal the sum of the Total Cost Estimate less the Forecast Cost of such Cost Accounts that have no supporting gWBS Accounts. Then the Cost engineer can generate the special report, called gWBS EXCEL File, to be used as in input data for TECA, creating the Code of Accounts and the First Forecast Journal Entry automatically; (to be explained in one of our future e-mail articles).